The Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade has recently announced the Wholesale Price Index (WPI) for February 2021. This reveals how wholesale prices have changed over the past month.
Wholesale Price-Inflation Rise
February saw an increase in the Wholesale Price-Inflation, marking a consecutive two-month rise to 4.17%. This percentage is the highest it’s been since November 2018, when it reached 4.47%. In comparison, WPI inflation was at 2.03% in January 2021 and 2.26% in February 2020.
The Trigger for Inflation Surge
The surge in inflation is primarily attributed to an increase in the prices of food articles, fuel, and power. The food articles category witnessed a 1.36% inflation in February, contrasting with a -2.80% inflation in January.
Checking Retail Inflation
Based on the Consumer Price Index (CPI), retail inflation held at 5.03% for February.
Understanding the Wholesale Price Index
The Wholesale Price Index (WPI) is a marker of price changes for goods sold and traded in bulk between businesses. This index is published by the Office of Economic Adviser, Ministry of Commerce and Industry and is the primary inflation indicator used in India. A criticism of this index is that it fails to reflect the prices at which the general public purchases products. As of 2017, the base year of the All-India WPI shifted from 2004-05 to 2011-12.
Consumer Price Index Explained
The Consumer Price Index (CPI) evaluates price changes from a retail buyer’s perspective. The National Statistical Office (NSO) releases this index. By calculating the price differences in commodities and services including food, medical care, education, and electronics among others, it reflects the consumer’s expenditure. Sub-groups of the CPI include food and beverages, fuel and light, housing, clothing, bedding, and footwear.
There are four types of CPI: CPI for Industrial Workers (IW), CPI for Agricultural Labourer (AL), CPI for Rural Labourer (RL), and CPI (Rural/Urban/Combined). The Labour Bureau in the Ministry of Labour and Employment compiles the first three, while the NSO in the Ministry of Statistics and Programme Implementation compiles the fourth. Since 2012, the Base Year for the CPI has been 2012.
The Role of CPI Data in Monetary Policy
The Monetary Policy Committee (MPC) uses CPI data in controlling inflation. In April 2014, the Reserve Bank of India (RBI) designated the CPI as the key measure for inflation.
CPI vs. WPI
While the WPI tracks inflation at the producer level, the CPI captures changes in price levels at the consumer level. Unlike the WPI, the CPI also accounts for price changes in services.
Defining Inflation
Inflation refers to a rise in the costs of most commonly used goods and services such as food, clothing, housing, recreation, transport, and consumer staples. A measure of average price change in a variety of commodities and services over time, inflation indicates a decrease in a country’s currency’s purchasing power. While excessive inflation could decelerate economic growth, a moderate level is necessary to promote production. In India, two main indices measure inflation – WPI and CPI, tracking wholesale and retail-level price changes respectively.
